Bipartisan backing to halt DOL fiduciary rule nowhere in sight
An attempt to get Democratic buy-in on legislation that would force the DOL to hold off on finalizing its rule until the SEC acts died on the vine at a House hearing.
Members of Congress showed their stripes at a hearing in the House of Representatives on Thursday, with Democrats appearing willing to stand with the Obama administration on a controversial Labor Department regulation that would raise investment advice standards for retirement accounts.
For the most part, Democrats on the House Financial Services Committee did not call for halting the proposal when two of the panel’s subcommittees met to examine the rule. The hearing focused on legislation written by Rep. Ann Wagner, R-Mo., that would force the DOL to hold off on finalizing its rule until the Securities and Exchange Commission acted on a similar measure that would apply to all retail investment advice.
Rep. Ed Perlmutter, D-Colo., co-sponsored a similar bill by Ms. Wagner in 2013. But he’s not doing so in this Congress, he said, because the DOL has finally re-proposed a fiduciary rule after withdrawing the original one in 2011 and has indicated that it is willing to address concerns about the proposal.
“That train has left the station,” Mr. Perlmutter said.
Rep. Brad Sherman, D-Calif., criticized Ms. Wagner’s bill for placing too many restrictions on the SEC in its effort to produce an advice-standards regulation.
“It’s a little hard to get support on this side of the aisle to tell the SEC to go first, and then tell it to go more slowly,” Mr. Sherman said.
The SEC has not moved in the five years since receiving authority from the Dodd-Frank financial reform law to propose an advice standard. The DOL fiduciary rule, designed to reduce conflicts of interest for brokers working with 401(k) and individual retirement accounts by requiring them act in their clients’ best interests, was introduced in April and could be finalized early next year.
Ms. Wagner is looking for bipartisan support for her bill, which could get a full committee vote at the end of the month. Following the hearing, committee chairman Rep. Jeb Hensarling, R-Texas, said the panel would advance the bill.
Based on Democratic reaction at the hearing, it is going to be tough for the measure to attract much support on that side of the aisle.
“If you want the SEC to act, allow the DOL to move forward,” said Rep. Al Green, D-Texas, and ranking member of the House Financial Services Subcommittee on Oversight and Investigations. “As a result of moving forward, that will encourage action by the SEC.”
But Democrats also raised several concerns about the complex rule, which includes a legally binding contract that brokers would have to sign that commits them to act as fiduciaries for their clients.
‘We must strike the right balance between access to financial services and investor protection,” said Rep. Gregory Meeks, D-N.Y.
The most powerful force holding Democrats together on the rule is the strong backing that it has received from President Barack Obama.
The only Democrat at the hearing to bash the rule was Rep. David Scott of Georgia, who said it would have the effect of “putting the financial system in a strait jacket.” He also read a letter from the African American Chamber of Commerce asserting that the rule would hurt minority savers.
Critics say the rule would significantly increase liability risk and regulatory costs for brokers and make giving and receiving investment advice much more expensive.
The Obama administration argues that the rule is necessary to reduce incentives that make brokers put clients in high-fee products that erode retirement savings.
Republicans and the industry witnesses appearing at the hearing accused the White House of rushing the rule to completion.
“The Obama administration’s sprint toward the finish line of this rule-making put politics above people, and it should be the other way around,” said Rep. Sean Duffy, R-Wisc., and chairman of the House Financial Services Subcommittee on Oversight and Investigations.
The DOL was not invited to the hearing to defend itself. But it did release a paper on Thursday asserting that the rule would help people with modest retirement accounts, the demographic critics say brokers would be forced to abandon under the new regime.
“All savers — whether large or small — can lose money due to conflicts of interest, but low- and middle-income small savers are particularly vulnerable to the negative impacts of conflicted advice,” the paper states. “The rule in no way prevents advisers from providing financial advice to small savers, and the rule is purposefully designed to provide advisers with significant flexibility in choosing the business model that allows them to best serve their clients.”
An industry witness at the hearing disagreed with the DOL’s assessment.
The rule would “subject [advisers] to Monday morning quarterbacking” by clients when investments lose money and “open a Pandora’s box of litigation,” said Scott Stolz, senior vice president for private client group products at Raymond James & Associates Inc.
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